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Economics EOC Quiz Answer Key
Personal Finance Economics - (SSEPF1) Spending And Saving, (SSEPF2) Role Of Banks, (SSEPF3) Monetary And Fiscal Policy,
(SSEPF4) Creditworthiness
Student Name:
_______________________
Teacher Name: Heather Creamer
_________
Score: _________
Date:
1) Ken wants to purchase a new smartphone and knows it will cost him about $300. How much will he have to save a month if he
wants to purchase the phone in five months?
A)
$100
B)
$40
C)
$60
D)
$80
Explanation:
Ken will need to save at least $60/month in order to purchase his new phone. To figure this out, take the amount needed and divide
by five.
2)
When William got a summer job delivering newspapers, he decided to budget his income. This week, William made $50 at
work.
According to William’s budget, how much money from this week’s pay should he put into his new computer fund?
A)
$5
B)
$10
C)
$15
D)
$20
Explanation:
William puts 10% of his income into his new computer fund. From this week’s $50 pay, William should put $5 into his new computer
fund.
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3)
Automobile Comparison
Year
Type
Price
Miles
Safety
Reviews
2002
Ford Mustang
$15,999 45K ★ ★ ★
★★★★
2005
Kia Rio
$10,500 23K ★ ★ ★
★★
2003
Mini Cooper
$14,999 88k ★ ★ ★ ★
★★★★★
2002 Volkswagen Jetta $12,000 48K ★ ★ ★ ★ ★ ★ ★ ★ ★ ★
You want to buy a car, and you have decided that safety is the primary concern. After consulting the research in the table, which
vehicle should you purchase?
A)
Kia Rio
B)
Mini Cooper
C)
Ford Mustang
D)
Volkswagen Jetta
Explanation:
Because it has 5 stars for safety, you should purchase the Volkswagen Jetta, if safety is your primary concern. Using the same
criterion, you would probably want to stay away from the Rio and the Mustang.
4)
Examine Terrell’s paycheck to answer this question.
When Terrell cashes his paycheck, he immediately puts 50% into his savings account.
How much money will he put into his savings account when he cashes his check?
A)
$30.75
B)
$50.00
C)
$62.50
D)
$75.25
Explanation:
Half, or 50%, of Terrell’s paycheck equals $62.50.
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5) Which of the incentives listed is MOST LIKELY a negative incentive used to discourage a specific action?
A)
coupons
B)
parking tickets
C)
frequent flier miles
D)
buy-one, get-one free
Explanation:
Parking tickets, public library fines, littering fines, and speeding tickets are a few examples of negative incentives used to discourage
specific actions of people. Using a monetary fine encourages people to behave responsibly.
6) For investments, how are risk and return related?
A)
When the risk is low, the return is high.
B)
When the risk is high, the return is low.
C)
When the risk is high, the return is high.
D)
When the risk is low, the return cannot be calculated.
Explanation:
For investments, when the risk is high, the return is high. By definition, riskier investments have a greater chance of loss, therefore
the return must be higher to encourage investors.
7) Why is there a difference between interest charged and interest earned?
A)
Banks are non-profit institutions.
B)
Banks are profit-making institutions.
C)
Banks must pay more than they receive.
D)
There is no difference between interest charged and interest earned.
Explanation:
Because banks are profit-making institutions, the interest charged by banks on loans must be more than the interest earned by
customers. The difference is called the spread.
8) Kristi deposits, or invests, her paycheck in a savings account. The bank can then offer some of the money to a borrower in the
form of a loan. How can Kristi benefit financially from this relationship?
A)
Kristi can earn interest on her original deposit.
B)
Kristi can feel good that she supported a borrower.
C)
Kristi can choose to invest her money in another bank that doesn't make loans to borrowers.
D)
Kristi can decide to take her money out the savings account before the loan is made to save money.
Explanation:
When Kristi deposits her paycheck, her investment can benefit her financially because she can earn interest on her original deposit.
How much interest she can earn will depend on the bank or financial institution.
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9)
Based on the graph, which of these statements is TRUE?
A)
Investors who want low risk should invest in bonds.
B)
A certificate of deposit is a riskier investment than a bond.
C)
Money in a stock-based mutual fund grows as fast as in a bond.
D)
Money in stocks have both high risk and high potential return.
Explanation:
Stocks have both high risk and high potential return because those two concepts go together in investing.
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10)
Jan is risk-averse, but wants to earn the best rate of return in less than two years. Which investment would MOST LIKELY meet Jan's
need?
A)
bonds
B)
stocks
C)
certificates of deposit
D)
stock-based mutual funds
Explanation:
Certificates of Deposit would best meet Jan's need because many CDs are less than two years, and provide a higher rate of return
than savings accounts.
11) Which investment offers the BEST combination of low risk and high return?
A)
corporate bond
B)
corporate stock
C)
government-secured bond
D)
long-term certificate of deposit
Explanation:
The investment that offers the BEST combination of low risk and high return is long-term certificate of deposit. Stocks are typically
high risk and high return, while bonds (especially government-secured bonds) are low risk and low return.
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12) Inflation is defined as a rise in the general level of prices. When inflation occurs, the buying power of the dollar would
A)
increase.
B)
decrease.
C)
remain stable.
D)
not be affected by inflation.
Explanation:
When inflation occurs, the buying power of the dollar would decrease. Inflation results in less "bang for your buck" because it erodes
the purchasing power of a unit of currency.
13) Of the following groups, who would be the most impacted by inflation?
A)
members of strong labor unions
B)
people who do not have any debt
C)
employees who have received raises
D)
individuals living on fixed incomes
Explanation:
Of the groups listed, indiviudals living on fixed incomes would be most impacted by inflation. Their incomes do not change yet the
prices of goods and services are increasing. They can buy less goods and services.
14) Most economists believe that a sales tax increase affects which group the MOST?
A)
hourly workers
B)
salaried workers
C)
people with low incomes
D)
people with the highest range incomes
Explanation:
A sales tax increase affects people with low incomes more than the other groups. It is considered to be primarily a regressive tax
since a greater percentage of their incomes goes to taxes than would the incomes of wealthier people.
15) A regressive tax is BEST defined as a rate of tax
A)
that falls as income rises.
B)
that rises as income rises.
C)
that is constant as income rises.
D)
that is applied to corporate incomes.
Explanation:
A regressive tax is BEST defined as a rate of tax that falls as income rises. A prime example of a regressive tax is a sales tax, for
those with lower incomes see a greater percentage of their income go towards a sales tax than do those with higher incomes.
16) Which occupation would be LEAST affected by inflation?
A)
a doctor in private practice
B)
an owner of a shipping company
C)
an owner of a small hardware store
D)
a retired teacher living on his pension
Explanation:
Of these examples, a doctor in private practice would be the least affected by inflation. Inflation generally hurts most those on fixed
incomes or those which costs that fluctuate greatly. The doctor's costs remain more constant than either examples involving
business owners.
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17) The federal personal income tax is an example of what kind of tax?
A)
regressive tax
B)
progressive tax
C)
value-added tax
D)
proportional tax
Explanation:
The federal personal income tax is an example of a progressive tax. A progressive tax means the rate of tax rises as income rises (up
to a certain point).
18) Tax rates in which the percentage of tax is the same regardless of the level of income is MOST LIKELY a
A)
regressive tax.
B)
progressive tax.
C)
value-added tax.
D)
proportional tax.
Explanation:
Tax rates in which the percentage of tax is the same regardless of the level of income is MOST LIKELY a proportional tax. Another
term for this type of tax is a "flat tax," but such taxes are uncommon in advanced economies. Progressive and regressive taxes are
almost always used there.
19) Which specific tax is considered an excise tax?
A)
tax on income
B)
tax on gasoline
C)
tax on home sales
D)
tax on investments
Explanation:
The tax on gasoline is considered an excise tax, which is an "inland" tax (as opposed to an import or border tax) on specific goods.
Excise taxes are usually passed from the producer onto the consumer, meaning that the price of the good rises in the amount of the
tax.
20) State governments often decide to place a "sin tax" on specific products or goods, like alcohol and tobacco. Which rationale is
LEAST LIKELY to encourage governments to adopt a "sin tax"?
A)
"Sin taxes" encourage people to consume less of a good because it is illegal.
B)
"Sin taxes" quickly raise funds through indirect taxes affecting users only.
C)
"Sin taxes" disproportionally affects lower income groups.
D)
"Sin taxes" generate funding for special projects.
Explanation:
While it is true that "sin taxes" disproportionally affect lower income groups, this is not a reason that governments would want to
adopt them. Instead, governments would focus on the fact that the tax might discourage behaviors- such as smoking- that could be
more costly down the road.
21) Of these choices, the BEST example of a regressive tax in the United States is
A)
corporation tax.
B)
the state income tax.
C)
the federal personal income tax.
D)
the federal excise tax on gasoline.
Explanation:
The BEST example of a regressive tax in the United States is the federal excise tax on gasoline. Most excise taxes affect the mid to
lower income groups proportionally harder than the higher income groups. Other examples of regressive taxes would be a tax on
cigarettes or alcohol- so-called "sin taxes"- and state sales taxes.
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22) Which group is impacted most DIRECTLY from a progressive tax?
A)
the unemployed
B)
those with higher incomes
C)
those whose main income comes from investments
D)
those with the lowest incomes from minimum wage jobs
Explanation:
Because progressive taxes change with the level income, the more money earned, the higher the tax rate. Therefore, those with
higher incomes bear a heavier tax burden than those with lower incomes.
23) Which of these is the BEST definition of a proportional tax?
A)
a tax rate that is fixed for all people
B)
a tax rate that depends upon a person's purchases
C)
a tax amount that is the same amount for everyone
D)
a tax that is based on a percentage of a person's income
Explanation:
A proportional tax is one in which the tax rate that is fixed for all people. In other words, if you make $30,000 annually you are
taxed at a rate of 20% (for example). And if you were to make $300,000 annually your tax rate would still be 20%. This is not the
same amount, but it is the same tax rate.
24) What is an example of credit?
A)
A person withdraws money from a bank account using an ATM card.
B)
A person borrows money from a finance company to buy a car.
C)
A person deposits a paycheck into a savings account.
D)
A person pays interest on an existing mortgage.
Explanation:
An example of credit is when a person borrows money from a finance company to buy a car. Once credit is extended to a person and
is used for a purchase, the credit is converted to a debt, and the person has the financial obligation to repay the loan.
25) Which of these is LEAST LIKELY to determine credit worthiness?
A)
payment history
B)
length of employment
C)
personal health history
D)
personal educational background
Explanation:
Personal health history is not reflected in credit worthiness. There are many other factors that determine credit worthiness other
than the ones listed... like annual income, type of occupation, and length of credit history.
26) Jose is applying for an automobile loan. The lender considers Jose creditworthy MOST LIKELY because Jose
A)
has a new job.
B)
has a home mortgage loan.
C)
has many credit cards already.
D)
has made on-time payments to other loans.
Explanation:
The lender considers Jose creditworthy MOST LIKELY because he has made on-time payments to other loans. Lenders want to know
you are a good risk to borrow money, and making payments on time with other loans- whether they be credit cards, mortgages, etcis the best way for them to make that determination.
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27) A finance company agrees to loan money to a buyer for a new washer and dryer. What is this an example of?
A)
The finance company is assuming a new debt.
B)
The finance company is extending credit to a buyer.
C)
The finance company is creating a savings plan for a buyer.
D)
The finance company is saving the buyer money on a new loan.
Explanation:
By agreeing to loan money to a buyer, the finance company is extending credit to a buyer. Once credit is extended to the buyer and
if the buyer uses the credit to buy the washer and dryer, the money borrowed then becomes a debt. The finance company may be
saving the buyer money, but that cannot be determined from the example.
28) While credit is all or part of an amount a borrower may use, debt is
A)
the amount of credit that is used.
B)
repaid before credit is extended.
C)
the unused portion of credit.
D)
added to the credit amount.
Explanation:
While credit is all or part of an amount a borrower may use, debt is the amount of credit that is used. Credit worthiness is partially
determined by the borrower's track record of repaying debt, but all debt does not have to be repaid before credit is extended.
29) Kim is deciding between two loan offers. To make the BEST decision, Kim should
A)
research the beacon score of each loan.
B)
analyze each loan's debt-to-credit ratio.
C)
compare each loan's annual percentage rate.
D)
investigate the average prime rate of both loans.
Explanation:
Kim should compare each loan's annual percentage rate. Individuals have a beacon score and there is no debt-to-credit ration or
average prime rate.
30) Sarah is concerned about identity theft. She wants to check her overall credit worthiness. Sarah should MOST LIKELY
A)
check her credit history from a bank.
B)
check her credit history from her employer.
C)
check her credit history from a credit card company.
D)
check her credit history from a credit reporting agency.
Explanation:
She would need to check her credit history from a credit reporting agency.. It's called a credit report, and there are three major credit
reporting agencies who- usually- do this for free.
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